Supreme Court Allows Recovery of Foreign Lost Profits For Shipping Components of a Patented Invention Overseas

On June 22, 2018, the Supreme Court issued a decision in WesternGeco LLC v. Ion Geophyiscal Corp. addressing whether foreign lost profits can be recovered for infringement under 35 U.S.C. § 271(f)(2) of the Patent Act.  The decision can be retrieved here.

In a 7-2 decision, the majority opinion authored by Justice Thomas reversed the Federal Circuit’s denial of foreign lost profits resulting from infringement under § 271(f)(2).  The Supreme Court’s decision could have broad implications for domestic manufacturers, increasing the potential awards a patentee may recover in a U.S. lawsuit and potentially incentivizing manufacturing to be moved abroad.

The WesternGeco Decision

Foreign Lost Profits Recoverable For Infringement Of Section 271(f)(2):  Congress enacted Section 271(f) to close a perceived loophole in patent law.  Before the enactment of 271(f), an accused infringer could domestically manufacture components of an infringing system, which alone did not infringe, for assembly overseas into an infringing device and escape liability.  To close this gap, Section 271(f) generally speaking made the “supply” of components of a patented invention from the U.S. an act of infringement. 

WesternGeco sued ION Geophysical for patent infringement under Section 271(f)(2) and won at trial, including an award of foreign lost profits.  ION Geophysical appealed that decision, and the Federal Circuit reversed the lost profits award, relying on the presumption against extraterritoriality (i.e., the presumption that U.S. laws apply only within the U.S.).  WesternGeco appealed.

In reversing the Federal Circuit and finding that foreign lost profits could be recovered, the majority relied quite heavily on the language of the Patent Act, and Sections 271(f) and 284 in particular.  The majority’s extraterritoriality analysis examined the statutes’ “focus” and the location of the prohibited conduct in question, and started with the language of Section 284, which provides for damages adequate to compensate for “the infringement.”  The question thus became where “the infringement” provided for under Section 271(f)(2) occurred.  The majority concluded that the “infringement” under Section 271(f)(2) was the “supply” of certain components of the patented invention, all of which was domestic conduct which did not run afoul of the presumption against extraterritoriality.  Since that infringing act did not raise extraterritoriality concerns, and Section 284 requires damages adequate to compensate for that infringement, including lost profits, the majority concluded that foreign lost profit damages could be awarded for this domestic infringing act of supplying components.  This holding is both broad and narrow; while the majority generally held that foreign lost profits could be obtained for infringement under Section 271(f)(2) without any apparent exceptions or caveats, its holding can be read to be limited to Section 271(f)(2) specifically.

The majority dismissed the dissent as conflating the injury itself with the damages arising from that injury, finding that the injury itself was domestic, and thus did not raise extraterritoriality concerns.

The Dissent:  The two dissenting justices, Justices Gorsuch and Breyer, came to the opposite conclusion in light of the statutory language.  They found that the language of the Patent Act did not support an award of foreign lost profits, and also expressed comity concerns (which echoed their concerns at oral argument). 

Practical Impact of WesternGeco

Broader Recovery For Patentees:  In cases of infringement under 271(f)(2), patentees can now more assuredly seek foreign lost profits, potentially increasing damage awards in a patent litigation suit.  This may also affect the scope of discovery, as patentees may be more interested in obtaining information on foreign sales when bringing claims under Section 271(f)(2).  It remains to be seen whether future cases will try to expand this holding to other provisions of Section 271.

Relocation Of Manufacturing Overseas:  The WesternGeco decision may also impact manufacturing in the United States. Hypothetically, domestic manufacturers may be incentivized to move operations overseas, with this increase in damage exposure.